When measuring GDP, you must be careful to examine all the information you have and then only calculate GDP using the components that count toward GDP. In your example here, we can start with removing the components and numbers listed that are not included when calculating GDP. Those include:

1. Puchases of stocks and bonds because we only look at transactions of final physical goods and not financial purchases.

2. Sales of secondhand items because GDP only considers new goods that have been created within the country.

All of the answers given here are correct. The gross domestic product for this hypothetical economy would be $95 billion. To understand why this is so, we can take two approaches.

First, we can approach this by thinking about what GDP includes. GDP includes the market value of final goods or services produced within the country during a given time period. This means that we cannot include sales of second-hand goods because we would be double-counting those goods. We would have counted them once when they were sold to their “final user” (the consumer) and then again when they were sold second-hand. That would overstate how much has actually been produced. This also means that we cannot include stocks and bonds. Stocks and bonds are not goods or services. They are simply pieces of companies or of debt, not things that have been produced. Once we exclude these things from our calculation, we add the other categories up and we get $95 billion.

We can also approach this by using an equation. One equation for finding GDP (called the expenditure approach) is GDP = consumption + government purchases + investment + net exports. In this situation, the equation is

GDP = 50 + 25 + 30 – 10 = 95

The reason we subtract the 10 rather than adding it is because it is given as a negative number. That means that our country has imported more than it exported.

Thus, we get a GDP for this economy of $95 billion when we understand which categories of expenditures (second-hand sales, purchases of financial instruments) do not count as part of GDP.